XML 25 R13.htm IDEA: XBRL DOCUMENT

Fair Value Disclosures

3 Months Ended

Feb. 28, 2021

The following is a summary of our financial assets and liabilities that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on net asset value (“NAV”) of $1,017.8 million and $956.0 million at February 28, 2021 and November 30, 2020, respectively, by level within the fair value hierarchy (in thousands):


	February 28, 2021
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)		Total
Assets:
Financial instruments owned:
Corporate equity securities	$	2,687,871	$	58,056	$	83,278	$	—	$	2,829,205
Corporate debt securities	—		3,451,794		6,811		—		3,458,605
Collateralized debt obligations and collateralized loan obligations	—		91,654		25,894		—		117,548
U.S. government and federal agency securities	2,485,813		73,550		—		—		2,559,363
Municipal securities	—		292,604		—		—		292,604
Sovereign obligations	1,668,975		799,239		—		—		2,468,214
Residential mortgage-backed securities	—		1,880,823		21,692		—		1,902,515
Commercial mortgage-backed securities	—		37,013		2,671		—		39,684
Other asset-backed securities	—		63,956		60,594		—		124,550
Loans and other receivables	—		3,099,917		79,055		—		3,178,972
Derivatives	3,346		3,091,787		39,397		(2,604,607)		529,923
Investments at fair value	—		6,399		45,472		—		51,871
Total financial instruments owned, excluding Investments at fair value based on NAV	$	6,846,005	$	12,946,792	$	364,864	$	(2,604,607)	$	17,553,054



Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	2,124,994	$	1,075	$	4,443	$	—	$	2,130,512
Corporate debt securities	—		1,824,458		1,571		—		1,826,029
U.S. government and federal agency securities	2,618,198		—		—		—		2,618,198

Sovereign obligations	1,343,920		1,016,688		—		—		2,360,608

Commercial mortgage-backed securities	—		—		35		—		35
Loans	—		2,326,306		14,916		—		2,341,222
Derivatives	2,173		3,734,965		344,903		(2,997,103)		1,084,938
Total financial instruments sold, not yet purchased	$	6,089,285	$	8,903,492	$	365,868	$	(2,997,103)	$	12,361,542

Other secured financings	$	—	$	—	$	2,168	$	—	$	2,168

Long-term debt	$	—	$	1,061,042	$	723,115	$	—	$	1,784,157

(1)Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.


	November 30, 2020
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)		Total
Assets:
Financial instruments owned:
Corporate equity securities	$	2,331,440	$	58,159	$	75,797	$	—	$	2,465,396
Corporate debt securities	—		2,954,201		23,146		—		2,977,347
Collateralized debt obligations and collateralized loan obligations	—		64,155		10,513		—		74,668
U.S. government and federal agency securities	2,840,025		91,653		—		—		2,931,678
Municipal securities	—		453,881		—		—		453,881
Sovereign obligations	1,962,346		591,342		—		—		2,553,688
Residential mortgage-backed securities	—		1,100,849		21,826		—		1,122,675
Commercial mortgage-backed securities	—		736,291		2,003		—		738,294
Other asset-backed securities	—		103,611		79,995		—		183,606
Loans and other receivables	—		2,610,746		77,042		—		2,687,788
Derivatives	1,523		2,000,752		21,678		(1,556,136)		467,817
Investments at fair value	—		6,122		67,108		—		73,230
Total financial instruments owned, excluding Investments at fair value based on NAV	$	7,135,334	$	10,771,762	$	379,108	$	(1,556,136)	$	16,730,068

Securities received as collateral	$	7,517	$	—	$	—	$	—	$	7,517

Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	2,046,441	$	9,046	$	4,434	$	—	$	2,059,921
Corporate debt securities	—		1,237,631		141		—		1,237,772
U.S. government and federal agency securities	2,609,660		—		—		—		2,609,660
Sovereign obligations	1,050,771		624,740		—		—		1,675,511
Residential mortgage-backed securities	—		477		—		—		477
Commercial mortgage-backed securities	—		—		35		—		35
Loans	—		1,776,446		16,635		—		1,793,081
Derivatives	551		2,391,478		47,695		(1,798,659)		641,065
Total financial instruments sold, not yet purchased	$	5,707,423	$	6,039,818	$	68,940	$	(1,798,659)	$	10,017,522
Short-term borrowings	$	—	$	5,067	$	—	$	—	$	5,067
Other secured financings	$	—	$	—	$	1,543	$	—	$	1,543
Obligation to return securities received as collateral	$	7,517	$	—	$	—	$	—	$	7,517
Long-term debt	$	—	$	1,036,217	$	676,028	$	—	$	1,712,245

(1)Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.

The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:

Corporate Equity Securities

•Exchange-Traded Equity Securities: Exchange-traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 of the fair value hierarchy. To the extent these securities are actively traded, valuation adjustments are not applied.

•Non-Exchange-Traded Equity Securities: Non-exchange-traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed from recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange-traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/Earnings before interest, taxes, depreciation and amortization (“EBITDA”), price/book value), discounted cash flow analyses and transaction prices observed from subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration).

•Equity Warrants: Non-exchange-traded equity warrants are measured primarily from observed prices on recently executed market transactions and broker quotations and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange-traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and can be measured using third-party valuation services or the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Corporate Debt Securities

•Investment Grade Corporate Bonds: Investment grade corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Investment grade corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Investment grade corporate bonds measured using alternative valuation techniques are categorized within Level 2 or Level 3 of the fair value hierarchy and are a limited portion of our investment grade corporate bonds.

•High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed from recently executed market transactions of institutional size. Where pricing data is less observable, valuations are categorized within Level 3 of the fair value hierarchy and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financing or recapitalization, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations and Collateralized Loan Obligations

Collateralized debt obligations (“CDOs”) and collateralized loan obligations (“CLOs”) are measured based on prices observed from recently executed market transactions of the same or similar security or based on valuations received from third-party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transactions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria, including, but not limited to, collateral type, tranche type, rating, origination year, prepayment rates, default rates and loss severity.

U.S. Government and Federal Agency Securities

•U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices obtained from external pricing services and categorized within Level 1 of the fair value hierarchy.

•U.S. Agency Debt Securities: Callable and non-callable U.S. agency debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy.

Municipal Securities

Municipal securities are measured based on quoted prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size and are generally categorized within Level 2 of the fair value hierarchy.

Sovereign Obligations

Sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. Sovereign government obligations, with consideration given to the country of issuance, are generally categorized within Level 1 or Level 2 of the fair value hierarchy.

Residential Mortgage-Backed Securities

•Agency Residential Mortgage-Backed Securities (“RMBS”): Agency RMBS include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and principal-only and interest-only (including inverse interest-only) securities. Agency RMBS are generally measured using recent transactions, pricing data from external pricing services or expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral and are categorized within Level 2 or Level 3 of the fair value hierarchy. We use prices observed from recently executed transactions to develop market-clearing spread and yield assumptions. Valuation inputs with regard to the underlying collateral incorporate factors such as weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer and weighted average loan age.

•Non-Agency RMBS: The fair value of non-agency RMBS is determined primarily using pricing data from external pricing services, where available, and discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. In addition, broker quotes, where available, are also referenced to compare prices primarily on interest-only securities.

Commercial Mortgage-Backed Securities

•Agency Commercial Mortgage-Backed Securities (“CMBS”): Government National Mortgage Association (“GNMA”) project loan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation of various factors, including prepayment speeds, default rates and cash flow structures. Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing (“DUS”) mortgage-backed securities are generally measured by using prices observed from recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.

•Non-Agency CMBS: Non-agency CMBS are measured using pricing data obtained from external pricing services, prices observed from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-Agency CMBS are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of the underlying inputs.

Other Asset-Backed Securities

Other asset-backed securities (“ABS”) include, but are not limited to, securities backed by auto loans, credit card receivables, student loans and other consumer loans and are categorized within Level 2 or Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services, broker quotes and prices observed from recently executed market transactions. In addition, recent transaction data from comparable deals is deployed to develop market clearing yields and cumulative loss assumptions. The cumulative loss assumptions are based on the analysis of the underlying collateral and comparisons to earlier deals from the same issuer to gauge the relative performance of the deal.

Loans and Other Receivables

•Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market consensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, for example, derived using market prices for debt securities of the same creditor and estimates of future cash flows incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure.

•Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans and data provider pricing. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.

•Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans to account for the arbitrage that is realized at the time of securitization. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.

•Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions and incorporating valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.

•Escrow and Claim Receivables: Escrow and claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent observations in the same receivable.

Derivatives

•Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, broker quotes or vanilla option valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized within Level 1 of the fair value hierarchy. All other listed derivative contracts are generally categorized within Level 2 of the fair value hierarchy.

•Over-the-Counter (“OTC”) Derivative Contracts: OTC derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current transaction. Where available, valuation inputs are calibrated from observable market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy.

OTC options include OTC equity, foreign exchange, interest rate and commodity options measured using various valuation models, such as Black-Scholes, with key inputs including the underlying security price, foreign exchange spot rate, commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Discounted cash flow models are also utilized to measure certain variable funding note swaps, which are backed by CLOs and incorporates constant prepayment rate, constant default rate and loss severity assumptions. Credit default swaps include both index and single-name credit default swaps. Where available, external data is used in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are generally observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

Investments at Fair Value

Investments at fair value includes investments in hedge funds, fund of funds and private equity funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy.

The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands):


	February 28, 2021
	Fair Value (1)		Unfunded Commitments
Equity Long/Short Hedge Funds (2)	$	345,570	$	—
Equity Funds (3)	23,856		11,043
Commodity Funds (4)	19,217		—
Multi-asset Funds (5)	580,269		—
Other Funds (6)	48,910		21,750
Total	$	1,017,822	$	32,793


	November 30, 2020
	Fair Value (1)		Unfunded Commitments
Equity Long/Short Hedge Funds (2)	$	328,096	$	—
Equity Funds (3)	23,821		11,242
Commodity Funds (4)	17,747		—
Multi-asset Funds (5)	561,236		—
Other Funds (6)	25,084		5,000
Total	$	955,984	$	16,242

(1)Where fair value is calculated based on NAV, fair value has been derived from each of the funds’ capital statements.

(2)This category includes investments in hedge funds that invest, long and short, primarily in both public and private equity securities in domestic and international markets. At both February 28, 2021 and November 30, 2020, approximately 94% of the fair value of investments in this category cannot be redeemed because these investments include restrictions that do not allow for redemption before December 31, 2021. At both February 28, 2021 and November 30, 2020, approximately 6% of the fair value of investments in this category are redeemable quarterly with 60 days prior written notice.

(3)The investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed; instead, distributions are received through the liquidation of the underlying assets of the funds which are primarily expected to be liquidated in approximately one to eight years.

(4)This category includes investments in a hedge fund that invests, long and short, primarily in commodities. Investments in this category are redeemable quarterly with 60 days prior written notice.

(5)This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At both February 28, 2021 and November 30, 2020, investments representing approximately 57% of the fair value of investments in this category are redeemable monthly with 60 days prior written notice.

(6)This category primarily includes investments in a fund that invests in short-term trade receivables and payables that are expected to generally be outstanding between 90 to 120 days and short-term credit instruments. These investments are redeemable quarterly with 90 days prior written notice.

Other Secured Financings

Other secured financings that are accounted for at fair value are classified within Level 3 of the fair value hierarchy. Fair value is based on estimates of future cash flows incorporating assumptions regarding recovery rates.

Securities Received as Collateral / Obligations to Return Securities Received as Collateral

In connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we report the fair value of the collateral received and the related obligation to return the collateral. Valuation is based on the price of the underlying security and is categorized within Level 1 of the fair value hierarchy.

Short-term Borrowings / Long-term Debt

Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity security. Long-term debt includes variable rate, fixed-to-floating rate, equity-linked notes, constant maturity swap, digital and Bermudan structured notes. These are valued using various valuation models that incorporate our own credit spread, market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs as well as prices for transactions in a given note during the period. Long-term debt notes are generally categorized within Level 2 of the fair value hierarchy where market trades have been observed during the period or model pricing is available, otherwise the notes are categorized within Level 3.

Level 3 Rollforwards

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended February 28, 2021 (in thousands):


	Three Months Ended February 28, 2021
	Balance at November 30, 2020		Total gains/losses (realized and unrealized) (1)		Purchases		Sales		Settlements		Issuances		Net transfers into/ (out of) Level 3		Balance at February 28, 2021		For instruments still held at February 28, 2021 changes in unrealized gains/(losses) included in:
																	Earnings (1)		Other comprehensive income (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	75,797	$	1,309	$	4,805	$	(4,647)	$	—	$	—	$	6,014	$	83,278	$	135	$	—
Corporate debt securities	23,146		266		130		(6)		—		—		(16,725)		6,811		297		—
CDOs and CLOs	10,513		3,840		11,427		(8,007)		(5,652)		—		13,773		25,894		3,368		—


RMBS	21,826		1,327		791		(627)		(514)		—		(1,111)		21,692		1,347		—
CMBS	2,003		(29)		1,105		(393)		—		—		(15)		2,671		97		—
Other ABS	79,995		2,361		14,604		(20,909)		(8,449)		—		(7,008)		60,594		1,721		—
Loans and other receivables	77,042		1,642		8,758		(44,427)		(66)		—		36,106		79,055		1,656		—
Investments at fair value	67,108		1,939		—		(23,575)		—		—		—		45,472		1,939		—
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	4,434	$	9	$	—	$	—	$	—	$	—	$	—	$	4,443	$	(22)	$	—
Corporate debt securities	141		1,430		—		—		—		—		—		1,571		(1,430)		—

CMBS	35		—		(35)		35		—		—		—		35		—		—
Loans	16,635		1,559		(6,821)		3,358		—		—		185		14,916		(1,559)		—
Net derivatives (2)	26,017		43,727		—		12,670		(92)		—		223,184		305,506		(43,727)		—
Other secured financings	1,543		—		—		—		—		625		—		2,168		—		—
Long-term debt	676,028		25,357		—		—		—		21,730		—		723,115		15,501		(40,858)

(1)Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in our Consolidated Statements of Earnings. Changes in instrument-specific credit risk related to structured notes within long-term debt are included in our Consolidated Statement of Comprehensive Income, net of tax.

(2)Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives.

Analysis of Level 3 Assets and Liabilities for the Three Months Ended February 28, 2021

During the three months ended February 28, 2021, transfers of assets of $75.8 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

•Loans and other receivables of $42.9 million, CDOs and CLOs of $14.6 million, Corporate equity securities of $9.9 million and Other ABS of $7.5 million due to reduced pricing transparency.

During the three months ended February 28, 2021, transfers of assets of $44.7 million from Level 3 to Level 2 are primarily attributed to:

•Corporate debt securities of $17.5 million, Other ABS of $14.5 million and Loans and other receivables of $6.8 million due to greater pricing transparency supporting classification into Level 2.

During the three months ended February 28, 2021, transfers of liabilities of $236.7 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

•Net derivatives of $236.5 million due to reduced pricing transparency.

During the three months ended February 28, 2021, transfers of liabilities of $13.3 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:

•Net derivatives of $13.3 million due to greater pricing transparency.

Net gains on Level 3 assets were $12.7 million and net losses on Level 3 liabilities were $72.1 million for the three months ended February 28, 2021. Net gains on Level 3 assets were primarily due to increased market values across CDOs and CLOs, Other ABS, Investments at fair value, Loans and other receivables, RMBS and Corporate equity securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivatives and structured notes within long-term debt.


	Three Months Ended February 29, 2020
	Balance at November 30, 2019		Total gains/losses (realized and unrealized) (1)		Purchases		Sales		Settlements		Issuances		Net transfers into/ (out of) Level 3		Balance at February 29, 2020		For instruments still held at February 29, 2020, changes in unrealized gains/(losses) included in:
																	Earnings (1)		Other comprehensive income (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	58,301	$	(8,195)	$	2,792	$	(1,934)	$	—	$	—	$	52,679	$	103,643	$	(8,206)	$	—
Corporate debt securities	7,490		1,269		1,478		(503)		(601)		—		15,957		25,090		879		—
CDOs and CLOs	20,081		(2,069)		17,594		(17,833)		—		—		3,179		20,952		(1,823)		—


RMBS	17,740		(280)		—		—		(3)		—		(487)		16,970		(250)		—
CMBS	6,110		(306)		—		—		(1,401)		—		(139)		4,264		571		—
Other ABS	42,563		(4,159)		81,323		(72,032)		(1,974)		—		(3,818)		41,903		(3,797)		—
Loans and other receivables	64,240		(3,781)		12,940		(13,042)		(7,087)		—		1,051		54,321		(5,109)		—
Investments at fair value	75,738		(20,392)		—		(76)		—		—		—		55,270		(20,392)		—
Securities purchased under agreements to resell	25,000		—		—		—		(25,000)		—		—		—		—		—
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	4,487	$	291	$	(513)	$	—	$	—	$	—	$	10	$	4,275	$	65	$	—
Corporate debt securities	340		(189)		(13,832)		14,079		369		—		—		767		(35)		—

CMBS	35		—		—		—		—		—		—		35		—		—
Loans	9,463		1		(9,872)		2,781		—		—		5,486		7,859		(1)		—
Net derivatives (2)	77,168		(17,528)		(278)		5,627		192		—		45,662		110,843		17,460		—
Long-term debt	480,069		(9,016)		—		—		—		128,475		(56,065)		543,463		(5,590)		14,606

(2)Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives.

Analysis of Level 3 Assets and Liabilities for the Three Months Ended February 29, 2020

During the three months ended February 29, 2020, transfers of assets of $85.3 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

•Corporate equity securities of $55.4 million, Corporate debt securities of $16.5 million and Loans and other receivables of $6.0 million due to reduced pricing transparency.

During the three months ended February 29, 2020, transfers of assets of $16.8 million from Level 3 to Level 2 are primarily attributed to:

•Other ABS of $6.3 million, Loans and other receivables of $4.9 million and Corporate equity securities of $2.7 million due to greater pricing transparency supporting classification into Level 2.

During the three months ended February 29, 2020, transfers of liabilities of $102.5 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

•Net derivatives of $83.0 million and structured notes within long-term debt of $13.1 million due to reduced market and pricing transparency.

During the three months ended February 29, 2020, transfers of liabilities of $107.4 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:

•Structured notes within long-term debt of $69.1 million and net derivatives of $37.3 million due to greater market transparency.

Net losses on Level 3 assets were $37.9 million and net gains on Level 3 liabilities were $26.4 million for the three months ended February 29, 2020. Net losses on Level 3 assets were primarily due to decreased market values across Investments at fair value, Corporate equity securities, other ABS and Loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased market values across certain derivatives and valuations of certain structured notes within long-term debt.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at February 28, 2021 and November 30, 2020

The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument (i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather, the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category.

For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.


February 28, 2021
Financial Instruments Owned:	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range				Weighted Average
Corporate equity securities	$	83,278
Non-exchange traded securities			Market approach	Price	$1		-	$213	$76
				EBITDA multiple	8.0				—
Corporate debt securities	$	6,811	Scenario analysis	Estimated recovery percentage	20	%	-	44%	30%
CDOs and CLOs	$	24,806	Discounted cash flows	Constant prepayment rate	8	%	-	20%	19%
				Constant default rate	2%				—
				Loss severity	25	%	-	35%	26%
				Discount rate/yield	4	%	-	21%	16%
RMBS	$	21,692	Discounted cash flows	Discount rate/yield	3	%	-	4%	3%
				Cumulative loss rate	3%				—
				Duration (years)	3.0		-	5.5	4.9
				Loss severity	35%				—
CMBS	$	2,671	Discounted cash flows	Loss severity	65%				—
				Discount rate/yield	16%				—
				Cumulative loss rate	10%				—
				Duration (years)	0.2				—
Other ABS	$	60,594	Discounted cash flows	Discount rate/yield	3	%	-	14%	9%
				Cumulative loss rate	8	%	-	19%	13%
				Duration (years)	0.9		-	2.0	1.5
			Market approach	Price	$100				—
Loans and other receivables	$	79,055	Market approach	Price	$31		-	$101	$83
			Scenario analysis	Estimated recovery percentage	0	%	-	100%	41%
Derivatives	$	38,014
Equity options			Volatility benchmarking	Volatility	41	%	-	57%	54%
Interest rate swaps			Market approach	Basis points upfront	0.7		-	6.4	3.3
Investments at fair value	$	45,472
Private equity securities			Market approach	Price	$6		-	$169	$53
			Scenario analysis	Estimated recovery percentage	17%				—
Financial Instruments Sold, Not Yet Purchased:
Corporate equity securities	$	4,443	Market approach	Price	$1				—
Corporate debt securities	$	1,571	Scenario analysis	Estimated recovery percentage	20%				—
Loans	$	14,916	Market approach	Price	$31		-	$50	$35
			Scenario analysis	Estimated recovery percentage	5%				—
Derivatives	$	344,903
Equity options			Volatility benchmarking	Volatility	29	%	-	62%	46%
Interest rate swaps			Market approach	Basis points upfront	0.7		-	6.4	3.5
Other secured financings	$	2,168	Scenario analysis	Estimated recovery percentage	19	%	-	100%	61%
Long-term debt
Structured notes	$	723,115	Market approach	Price	$104				—
				Price	€82		-	€112	€102


November 30, 2020
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range				Weighted Average
Corporate equity securities	$	75,409
Non-exchange-traded securities			Market approach	Price	$1		-	$213	$86
				EBITDA multiple	4.0		-	8.0	5.7
Corporate debt securities	$	23,146	Market approach	Price	$69				—
			Scenario analysis	Estimated recovery percentage	20	%	-	44%	30%
CDOs and CLOs	$	10,513	Discounted cash flows	Constant prepayment rate	20%				—
				Constant default rate	2%				—
				Loss severity	25	%	-	30%	26%
				Discount rate/yield	14	%	-	28%	20%
RMBS	$	21,826	Discounted cash flows	Cumulative loss rate	2	%	-	3%	3%
				Loss severity	35	%	-	50%	36%
				Duration (years)	2.0		-	12.9	5.1
				Discount rate/yield	3	%	-	12%	4%
Other ABS	$	67,816	Discounted cash flows	Cumulative loss rate	1	%	-	28%	11%
				Loss severity	50	%	-	85%	54%
				Duration (years)	0.2		-	2.1	1.3
				Discount rate/yield	1	%	-	16%	9%
			Market approach	Price	$100				—
Loans and other receivables	$	76,046	Market approach	Price	$31		-	$100	$84
			Scenario analysis	Estimated recovery percentage	19	%	-	100%	52%
Derivatives	$	19,951
Equity options			Volatility benchmarking	Volatility	47%				—
Interest rate swaps			Market approach	Basis points upfront	1.2		-	8.0	4.8
Investments at fair value	$	67,108
Private equity securities			Market approach	Price	$1		-	$169	$34
			Scenario analysis	Estimated recovery percentage	17%				—
Financial Instruments Sold, Not Yet Purchased:
Corporate equity securities	$	4,434	Market approach	Price	$1				—
Corporate debt securities	$	141	Scenario analysis	Estimated recovery percentage	20%				—
Loans	$	16,635	Market approach	Price	$31		-	$99	$55
Derivatives	$	46,971
Equity options			Volatility benchmarking	Volatility	33	%	-	50%	42%
Interest rate swaps			Market approach	Basis points upfront	1.2		-	8.0	5.4
Other secured financings	$	1,543	Scenario analysis	Estimated recovery percentage	19	%	-	55%	45%
Long-term debt
Structured notes	$	676,028	Market approach	Price	$100				—
				Price	€76		-	€113	€99

The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices or a percentage of the reported enterprise fair value are excluded from the above tables. At February 28, 2021 and November 30, 2020, asset exclusions consisted of $2.5 million and $17.3 million, respectively, primarily comprised of CDOs and CLOS, other ABS, CMBS, certain derivatives, loans and other receivables and corporate equity securities. At November 30, 2020, liability exclusions consisted of $0.8 million primarily comprised of certain derivatives and CMBS.

Uncertainty of Fair Value Measurement from Use of Significant Unobservable Inputs

For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the uncertainty of the fair value measurement due to the use of significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:

•Corporate equity securities, corporate debt securities, loans and other receivables, other ABS, private equity securities, certain derivatives and structured notes using a market approach valuation technique. A significant increase (decrease) in the price of the private equity securities, non-exchange-traded securities, corporate equity and debt securities, other ABS, loans and other receivables or structured notes would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the EBITDA multiple related to corporate equity securities would result in a significantly higher (lower) fair value measurement. Depending on whether we are a receiver or (payer) of basis points upfront, a significant increase in basis points would result in a significant increase (decrease) in the fair value measurement of interest rate swaps.

•Loans and other receivables, corporate debt securities, private equity securities and other secured financings using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the financial instrument would result in a significantly higher (lower) fair value measurement for the financial instrument.

•CDOs and CLOs, RMBS, CMBS and other ABS using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate and duration would have differing impacts depending on the capital structure and type of security. A significant increase (decrease) in the discount rate/security yield would result in a significantly lower (higher) fair value measurement.

•Derivative equity options using volatility benchmarking. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.

Fair Value Option Election

We have elected the fair value option for all loans and loan commitments made by our investment banking and capital markets businesses. These loans and loan commitments include loans entered into by our investment banking division in connection with client bridge financing and loan syndications, loans purchased by our leveraged credit trading desk as part of its bank loan trading activities and mortgage and consumer loan commitments, purchases and fundings in connection with mortgage-backed and other asset-backed securitization activities. Loans and loan commitments originated or purchased by our leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Financial instruments owned and loan commitments are included in Financial instruments owned and Financial instruments sold, not yet purchased in our Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have also elected the fair value option for certain of our structured notes which are managed by our investment banking and capital markets businesses and are included in Long-term debt and Short-term borrowings in our Consolidated Statements of Financial Condition. We have elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed by us on a fair value basis. The fair value option has been elected for certain other secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, Receivables – Brokers, dealers and clearing organizations, Receivables – Customers, Receivables – Fees, interest and other, Payables – Brokers, dealers and clearing organizations and Payables – Customers, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.

The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans, other receivables and debt instruments and gains (losses) due to other changes in fair value on Short-term borrowings and Long-term debt measured at fair value under the fair value option (in thousands):


	Three Months Ended
	February 28, 2021		February 29, 2020
Financial instruments owned:
Loans and other receivables	$	10,696	$	1,739
Financial instruments sold, not yet purchased:
Loans	$	—	$	(610)
Loan commitments	—		(661)
Short-term borrowings:
Changes in instrument specific credit risk (1)	$	—	$	57
Other changes in fair value (2)	—		12


Long-term debt:
Changes in instrument specific credit risk (1)	$	(91,982)	$	29,432
Other changes in fair value (2)	80,819		(37,642)

(1)Changes in instrument specific credit risk related to structured notes are included in our Consolidated Statements of Comprehensive Income, net of tax.

(2)Other changes in fair value are included in Principal transactions revenues in our Consolidated Statements of Earnings.

The following is a summary of the amounts by which contractual principal is greater than (less than) fair value for loans and other receivables, short-term borrowings, other secured financings and long-term debt measured at fair value under the fair value option (in thousands):


	February 28, 2021		November 30, 2020
Financial instruments owned:
Loans and other receivables (1)	$	5,826,957	$	1,662,647
Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2)	252,790		287,889
Long-term debt and short-term borrowings	(53,138)		(42,819)
Other secured financings	2,782		2,782

(1)Interest income is recognized separately from other changes in fair value and is included in Interest revenues in our Consolidated Statements of Earnings.

(2)Amounts include loans and other receivables 90 days or greater past due by which contractual principal exceeds fair value of $30.2 million and $30.0 million at February 28, 2021 and November 30, 2020, respectively.

The aggregate fair value of loans and other receivables on nonaccrual status and/or 90 days or greater past due was $5.4 million and $69.7 million at February 28, 2021 and November 30, 2020, respectively, which includes loans and other receivables 90 days or greater past due of $4.1 million and $3.8 million at February 28, 2021 and November 30, 2020, respectively.

Financial Instruments Not Measured at Fair Value

Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented within Level 1 of the fair value hierarchy. Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. Treasury securities with a fair value of $118.5 million and $34.2 million at February 28, 2021 and November 30, 2020, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details